21st January 2021. Tesla | Technology
Tesla’s market value; Looking back at CES2021
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The electric car company Tesla is currently worth—in terms of stock market valuation—as much as the rest of the entire global car industry put together. At the start of the week, its p/e ratio is north of 1,500, which means that if you bought a Tesla share tomorrow, it would take 1,500 years to earn back the money you paid for it in dividends. This huge stock price has pretty much happened over the past year.
This anomaly has prompted Horace Dedlu to update his Ten Commandments of the auto industry:
[E]ither there will be twice as many cars as we have now or they will be twice as expensive or they will be twice as profitable. And all that will happen really soon. We can’t have twice the cars since there will be nowhere to park them. We can’t double the price unless we double our wealth…
Something has to give.
Actually, it is worse than this.
Summarising his analysis in the Ten Commandments, the auto sector is a mature industry with an installed base of 1.2 billion vehicles worldwide. It generates significant external costs that attract more attention from policy makers, especially as urbanisation increases and wellbeing becomes more important. The logic of that attention would be to push vehicle sizes down, but the search for profit margins has instead driven manufacturers towards bigger vehicles instead. (More on this tomorrow).
But there’s another thing going on here. When access to capital was a constraint, carmakers that were more efficient were rewarded. Further, a company that innovated its technical and production capabilities—as Toyota did with its Toyota Production System—could maintain a competitive advantage for multiple decades.
But this was turned upside down by the flood of cheap capital released through quantitative easing following the financial crisis. There’s no longer a return to efficiency:
The firms that are husbanding capital can be “disrupted” by those who squander it. Those who observe discipline and pursue efficiency can be defeated by those who are undisciplined and inefficient…. The evidence is in the capitalization (and hence free capital availability) to entrants who have little to offer except a dream. The incumbents who thought they could sustain through technology transitions are being out-spent and having their access to what is still limited (raw materials or components) curtailed.
Dreams can drive high stock valuations, especially when articulated through a vivid future story by a charismatic CEO. But they still tend to end with a bump. This is a fine, succinct, analysis of how a sector works, in terms of strategy and business models.
(H/t The Browser)
It was CES2021 last week—held virtually for the first time, but still the most important place for consumer electronics companies to show their shiny new things and concepts. Time was that what was on show was an important guide to emerging trends in the digital sector. But that time passed a decade or more ago.
This year’s ‘highlights’ more or less underline that. Tech journalists have been struggling to find much of interest to say.
The TechRadar staff’s “hottest” list includes a rollable phone from LG (it’s a phone, but yes! It’s also a device); AMD’s new longer-life mobile processors; and also a smart facemask which includes a speaker to amplify your voice.
At IEEE Spectrum, Tekla S. Perry fell back on the “three top gadgets, three weird gadgets” routine. He liked the bluetooth speakers you could wrap round the earpieces of your glasses—and it seems such a simple idea that it’s surprising it’s not on the market, so maybe it’s been tried and failed before.
One of his weird ones? Compostable phone cases:
[Y]ou can imagine the designers at Incipio in a Zoom brainstorming session, during a time when many of us are at home literally watching our grass grow, coming up with the company’s latest twist on a phone case. “Let’s make it compostable!” suggested someone, leading to Incipio’s $40 Organicore phone case. The company advises that composting in a residential bin will take two to three years, I can’t imagine pushing aside an old phone case every time I turn my compost for that long.
All technology waves run out of momentum when markets become saturated. This is what a technology wave running out of momentum looks like in practice.
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